Hatton joined the rate-capping rebellion in 1985 as the council refused to make a rate increase. In June, the council changed tactics and set an illegal "deficit budget" which committed it to spending £30 million in excess of its income, claiming that the excess represented grant "stolen" by central government. Once adopted by the Liverpool District Labour Party and 49 councillors, this policy catapulted Hatton and the city council into massive media attention and conflict with the then-Conservative government.

Hatton was expelled from the Labour Party in 1986 for belonging to Militant which had earlier been found to be in breach of the Labour Party's constitution. Hatton argued that Militant was a legitimate Marxist tendency within the Labour Party, but the National Executive Committee voted to expel him by 12 votes to 6.[2]

In 1993, Hatton was accused of corruption as Deputy Leader of Liverpool City Council. After a lengthy trial, he was found not guilty.[3]

After his expulsion from the Labour Party, Hatton pursued a career in the media, presenting a show on radio station Talk Sport, and appearing in television programmes including Have I Got News for You, where he was given a particularly rough ride by regular panellist Paul Merton, who mocked his apparent aspiration to be a comedian. Hatton even began modelling menswear; he had worked in a men's tailoring shop as a teenager, and was known during his time as a politician for his well-tailored suits.[4]

Hatton presented the lunchtime phone-in on 105.4 Century FM when it launched in 1998, titled "The Degsy Debate". The BBC Two fly-on-the-wall documentary Trouble at the Top followed the station's launch, and Hatton's training. In the 1990s, he worked as Talk Radio's morning phone-in presenter.[5] In 1996, he was the subject of a BBC documentary, My Brilliant Career.[6]

It was reported in the Liverpool Daily Post in 2007 that Hatton had rejoined the Labour Party and intended to seek selection as a prospective parliamentary candidate in the North West. Hatton made clear that he is no longer a Trotskyist, but maintains that he remains firmly on the left of the party, expressing his belief that Labour has to abandon New Labour ideology (or "neo-Tory", as Hatton puts it) and return to its traditional values.

In a 2008 interview with The Sunday Telegraph,[9] Hatton revealed that he has become a capitalist running a property company in Cyprus and drives a £60,000 Range Rover. He justifies his change in attitude as "My days in politics were a very long time ago and I lost interest in it after I was expelled from the city council."

Hatton gave another interview to the Liverpool Daily Post in 2008 in which he reasserted his intention to seek selection as a Parliamentary Labour candidate for one of the Liverpool constituencies (or failing that, another North West constituency) at some point in the future. Hatton stated that he may challenge "one of the neo-Tory types currently representing Liverpool, like Maria Eagle maybe".

It emerged on 28 May 2015 that Hatton had attempted to rejoin the Labour Party two days after Labour's defeat in the 2015 general election. His application was rejected by Iain McNicol, the party's general secretary.[10]

In a BBC Newsnight broadcast on 27 July 2015 Hatton claimed not to be a property developer, and that he was a card carrying member of the Labour Party. He supported the campaign of Jeremy Corbyn to lead the Labour Party.[11] However, the Labour Party denied this, insisting instead that Hatton had been sent a membership card automatically[12] but had not been permitted to join.